Ottawa’s plan to expand access to halal mortgages could lower high borrowing costs, providers say

Federal budget references to mortgage products aimed at Canadian Muslims have members of the community celebrating, along with the mortgage providers that look to serve them, despite a lack of detail from the government on what is to come.

In Tuesday’s budget documents, the federal government indicated that it’s “exploring new measures to expand access” to financing methods such as “halal mortgages.”

The budget provided few details about the plan, other than to say the government had been consulting “financial services providers and diverse communities” and that an update would come in the 2024 fall economic statement. Despite no specifics, it was a welcome addition to the budget for the Muslim community.

“It was very happy news for me,” said Abdullah Mohiuddin, who has already taken out an Islamic, or halal, mortgage to purchase a home in the Edmonton area. He said he welcomed the government’s announcement that it would be finding a way to increase access to a financial product he believes his community needs.

Several firms in various Canadian provinces offer halal mortgages. Halal is an Arabic word that translates in English to “permitted” or “allowed” under Islamic law.

These mortgages are deliberately structured to adhere to both Canadian law and the belief systems of many Muslims. Interest, which is referred to in many Islamic texts as “riba,” is forbidden.

Abdullah Mohiuddin took out a halal mortgage to buy his Edmonton-area home. He says he’s pleased Ottawa plans to find a way to increase access to the mortgages for the Muslim community. (Peter Evans/CBC)

Although interest isn’t charged, there are still costs associated with halal mortgages. In many cases, the costs are higher than those associated with conventional mortgages, and the mortgages are often not available at the branches of mainstream financial institutions.

“It seems like it’s a little bit expensive,” Mohiuddin said, adding he believes the lack of established legal definitions for a halal mortgage in Canada is behind the higher costs. 

Announcement boosts credibility

Muslims looking for a halal mortgage are still going to be paying carrying costs for a loan to purchase their home.

Providers in the industry said these costs can be higher because while there is demand, there are fewer providers — and some halal mortgage providers are unable to foreclose due to religious restrictions, which can increase what some financiers assess as risk.

That could be changing with the federal announcement, say executives with Islamic mortgage provider Eqraz Inc., based in Oakville, Ont. The company has said there’s already a positive impact just from the five sentences in the federal budget regarding halal mortgages.

“I’m already seeing traction in our favour,” said Zuhair Naqvi, the firm’s founder and CEO, adding he believes that a mention in high-profile federal policies leads to credibility.

A man in black plastic-rimmed glasses faces the camera, next to a sign that says "Think outside the box"
Zuhair Naqvi, founder and CEO of Islamic mortgage provider Eqraz, says the reference to halal mortgages in the federal budget is already having a positive impact. (James Dunne/CBC)

“It allows me to go to the banks and the lenders and powers that be and tell them, ‘Look, guys, the government is supporting this, so please don’t be worried or anxious about participating in this,'” Naqvi said.

Mortgage providers who have worked with Eqraz echo his sentiment. “With the federal government coming in, this really encourages myself and excites me. And my phone is ringing off the hook,” said Naveed Malik, a mortgage agent with Dominion Lending Centres.

Naqvi said this is not about elevating Islamic mortgages above non-religious financial products or those that target members of other faiths.

“Halal mortgages do not provide a privilege to us,” Naqvi said, adding it’s about “being equal to non-Muslims.”

Fewer providers, higher costs

Malik said he estimates that the cost of halal mortgages is currently about four per cent higher than a conventional mortgage.

Islamic mortgage companies have previously speculated that with wider availability, costs could drop as more providers compete for business, and risk is lessened with a wider pool of lenders.

A bald man in a jacket and collared shirt leans on a counter.
Naveed Malik, a mortgage agent with Dominion Lending Centres, says since the government’s announcement in Tuesday’s budget, ‘my phone is ringing off the hook.’ (Submitted by Eqraz Inc.)

Many of the discrepancies in cost are due to what Islamic finance experts and industry players say are not just legal differences but basic structural anomalies in the mortgage.

Some types of arrangements more closely resemble a “rent-to-own” system, where the mortgage provider is also an owner of the home.

There are also some agreements where fees are charged instead of standard interest payments.

However, the lack of legal definitions specific to the interest-free nature of Islamic mortgages has often meant many mortgage insurance providers do not insure them — in particular because each halal provider may structure their mortgage differently, and uninsured mortgages can sometimes be more expensive.

WATCH | Most halal mortgages need religious approval:

Halal mortgages help fill the gap for Muslim homebuyers

For some Muslims, religious beliefs that restrict paying and receiving interest mean a traditional mortgage is off the table. To fill the gap, halal mortgages are hitting the Canadian housing market that are interest-free, but not without charges.

A 2010 report for the Canada Mortgage and Housing Corporation said Islamic financial products should not “present any particular difficulties” under Canadian accounting standards, but years later they are still far from widespread.

There have been legal issues, such as who is registered on land titles and whether a rent-to-own contract is subject to landlord and tenant legislation in various provinces.

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